Alaska Workers' Compensation Board s16

ALASKA WORKERS' COMPENSATION BOARD

P.O. Box 25512 Juneau, Alaska 99802-5512

) IN THE MATTER OF THE ORDER TO ) SHOW CAUSE CONCERNING THE ) FINAL ) DECISION AND ORDER ACCUSATION OF THE EMPLOYER’S ) FAILURE TO INSURE WORKERS’ ) COMPENSATION LIABILITY, ) AWCB Case No. 700000577 ) Against ) AWCB Decision No. 05-0111 ) ) Filed with AWCB Anchorage, Alaska J. B. SERVICES, ) Uninsured Employer, ) on April 20, 2005 Respondent. ) ) ) ) ) ) )

On March 9, 2005, in Anchorage, Alaska, the Alaska Workers’ Compensation Board (“Board”) heard the Accusation against the employer, J.B. Services, that it failed to carry workers’ compensation insurance. Mark Lutz, Compliance Investigator for the Workers’ Compensation Division of the State of Alaska, Department of Labor and Workforce Development, appeared at the hearing. The employer was represented by Mark Lawson, foreman and former co-owner. The record closed March 23, 2005. The Board proceeded as a two-member panel, which constitutes a quorum under AS 23.30.005. In Re J. B. SERVICES

ISSUES

1. Has the employer failed to provide the workers’ compensation insurance required by AS 23.30.075(a)? 2. Shall the Board issue a stop order under AS 23.30.080(d)?

SUMMARY OF THE EVIDENCE The employer has been the subject of previous proceedings before the Board regarding failure to insure for workers’ compensation. On December 10, 2003, the co-owner of J. B. Services, Mark Lawson, appeared before the Board to address an accusation that the business had failed to carry workers’ compensation insurance. The Compliance Investigator, Mr. Lutz, indicated that while the employer had been in existence since April 2002, it had no workers’ compensation coverage. An employee was injured and the employer subsequently obtained coverage for the period from June 2003 through June 2004. In AWCB Decision No. 03-0301, the Board found that Mr. Lawson owned and operated J.B. Services.1 The Board found that the employer was engaged in snowplowing and landscaping, on a seasonal basis. The Board found that the J. B. Services employed one or more persons as employees in various capacities. The Board concluded that the employer was required by AS 23.30.075 to insure for liability under the Alaska Workers’ Compensation Act. The Board further found that the employer allowed employees to work without workers’ compensation insurance coverage for an extended period. However, the employer did obtain coverage effective June 30, 2003 which was filed with the Board. The Board found that the employer has a pattern of hiring employees in the summer. However, as no pattern of violation was established, the Board declined to issue a stop order. The Board ordered Compliance Investigator Lutz to investigate the employer quarterly for a period of one year to insure the employer’s continuing compliance with AS 23.30.075 and AS 23.30.085.2

1 In the Matter of the Accusation of the Failure to Insure Workers’ Compensation Liability Against J. B. Services, AWCB Decision No 03-0301 (December 18, 2003) at 3 2 Id. at 4

2 In Re J. B. SERVICES

On June 16, 2004, the Board again heard an accusation that J. B. Services failed to carry workers’ compensation insurance.3 At this proceeding, Mr. Lutz indicated that during his follow up investigation of J.B. Services, he determined that employer had one or more employees who were working in May 2004 without having workers’ compensation coverage.4 In other words, the employer had resumed operations in the spring without having workers’ compensation coverage in place. Again, at hearing, Mr. Lawson testified that he was an owner of J. B. Services and also verified that the employer used employee labor. When Mr. Lutz served Mr. Lawson with a cease and desist order, Mr. Lawson asserted that he had no employees, only subcontractors. However, he later indicated that he uses employee labor. At hearing, Mr. Lawson produced a copy of a binder showing coverage for the employer effective May 19, 2004. The Board concluded in AWCB Decision No. 04-0147, that J.B. Services was an employer required by AS 23.30.075 to insure liability under the Alaska Workers’ Compensation Act. The Board did not issue a stop order prohibiting use of employee labor as Mr. Lawson produced proof of insurance. However, Mr. Lawson acknowledged there was no coverage from October 16, 2003 through June 3, 2004. The Board concluded: The Board finds that the employer has violated state law a second time. This is a very serious matter that endangers both injured workers and the interests of the State of Alaska. This is unacceptable behavior for any employer in Alaska. Any further violations will not be tolerated and the Board will strongly be included to issue a stop work order under AS 23.30.080(d) and recommend criminal prosecution under AS 23.30.075. AS 23.30.075(b) provides that an employer who fails to insure and keep insured employees subject to Chapter 23 or fails to obtain a certificate of self- insurance shall on conviction be subject to a fine of $10,000 and a sentence of imprisonment for not more than one year. The employer is hereby notified and warned not to repeat this violation.5

The Board found that the workers working with J. B. Services were employees and subject to the requirements of AS 23.30.075(a). The Board found the employer failed to provide coverage as required by AS 23.30.075(a). The Board again declined to issue a stop order under AS 23.30.080(d). The Board again directed the Compliance Investigator to investigate this employer on

3 In the Matter of the Accusation of the Failure to Insure Workers’ Compensation Against J.B. Services, AWCB Decision No. 04-0147 (June 24, 2004) 4 Id. at 2 5 Id. at 3

3 In Re J. B. SERVICES a quarterly basis for a period of two years to insure the employer’s compliance with AS 23.30.075 and AS 23.30.085.6

On March 9, 2005, the Board heard another accusation filed against the employer, J. B. Services, for failure to carry workers’ compensation insurance. The Compliance Investigator, Mr. Lutz, appeared and presented information to the effect that the employer was operating the business without workers’ compensation insurance. The employer’s workers’ compensation policy had been cancelled January 2, 2005 so the 2005 activities were not covered. The employee did later obtain coverage effective February 17, 2005. According to Mr. Lutz, the reason for the cancellation was the employer’s failure to respond to a request by the insurer to provide payroll information. At hearing, Mr. Lawson appeared on behalf of the business but stated that he is now the foreman of the business and both a former owner and a current owner.7 In previous proceedings before the Board in cases involving lack of workers’ compensation insurance coverage for J. B. Services, Mr. Lawson described himself as the owner of the business. He acknowledged that he was the co-owner in the past but now his wife, Patricia Lawson, is the sole proprietor. The couple’s sole income consists of net income from J.B. Services. Mr. Lawson derives no separate salary from the business. Mr. Lawson acknowledges that the business license is in her name. He acknowledges that he sets up jobs and he does 99% of the actual work for the business. She does payroll and bookkeeping. He also acknowledges that he signs joint tax returns which are prepared on behalf of the business. Efforts were made by the Board to reach Patricia Lawson to obtain her testimony in this matter but she was unavailable due to illness. Mr. Lawson indicates that they are both involved with the business.

The Compliance Investigator reviewed with the Board the concerns over this employer given its history of failing to maintain workers’ compensation coverage for its employees. When Mr. Lutz was advised that the employer had no employees as of January 2005, he consulted with the records for snowplowing activities carried on by J.B Services as a subcontractor for Anderson Brothers. Anderson Brothers has a contract to provide Eagle River street maintenance with the Municipality of Anchorage. These time logs show an operator or employee named Michael Coffer provided snowplowing services on November 13, 22, 23, 24, 25, 28, 2003 and December 20, 22, and 31,

6 Id. at 4 7 Mr. Lawson’s testimony on this point was inconsistent.

2003. Mr. Coffer also provided snowplowing services on January 10, 12, 2004, March 28, and 30, 2004 and May 28, 20048. Another employee operator providing snowplowing services, Dennis Thatcher, provided services on December 20, and 23, 2003 and January 10, 2004, February 6, and 9, 2004 and March 4 and 5, 2004. Another employee-operator of J. B. Services, Curtis Deans, provided snowplow services on January 10, 2004 and February 6 and 9, 2004. Another employee- operator of J. B Services, Adam Hoke, provided snowplowing services on December 3, 14, 15, and 22, 2004. The individual services by each employee were described on an hourly basis.

Mr. Lawson offered several arguments in defense of not having coverage and not reporting employees. Mr. Lawson indicates that he did not actually pay the employees a wage9 but rather performed services such as building a deck or performing other non-monetary services for individual employees. Mr. Lawson also indicated that he cancelled his workers’ compensation coverage for the period from January 2, 2005 through February 17, 2005 because he had sufficient coverage through his other insurance coverage. Mr. Lawson was allowed an opportunity to provide a letter from the insurance agent to verify the status of his workers’ compensation insurance coverage but he did not provide such a letter to the Board. According to Mr. Lutz, the employer’s policy was again reinstated February 19, 2005. However, the employer had no coverage for the period from January 2, 2005 through February 19, 2005. Mr. Lutz was particularly concerned that the employer had no coverage for the employees during the winter months of 2003-2004 when they were working plowing in the Eagle River area. Mr. Lutz also indicated that he was concerned that Mr. Lawson had represented to the Board in previous proceedings that he had no employees when, in fact, he did have employees. In particular, Mr. Lawson told the Board that he had no employees subject to workers’ compensation coverage at the June 24, 2004 hearing. Mr. Lutz maintains that the facts as set out in prior decisions indicate otherwise. At the time this representation was made, Mr. Lawson clearly understood the difference between an employee and an independent contractor. At page three of AWCB Decision No. 04-0147, the employer was found to have no coverage for its employee for the period from October 16, 2003 through June 3, 2004.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

8 Slush was plowed on this date. 9 Mr. Lutz maintains that the employees were paid on a $15-18 dollar per hour basis. The timesheets for the plowing work in Eagle River also indicate hours worked.

I. FAILURE TO FILE PROOF OF INSURANCE

The duty of an employer to file evidence of compliance with the workers’ compensation insurance requirement is set forth in AS 23.30.085: (a) An employer subject to this chapter, unless exempted, shall initially file evidence of his compliance with the insurance provisions of this chapter with the board, in the form prescribed by it. The employer shall also give evidence of compliance within 10 days after the termination of his insurance by expiration or cancellation. These requirements do not apply to an employer who has certification from the board of his financial ability to pay compensation directly without insurance. (b) If an employer fails . . . to comply with the provision of this section, he shall be subject to the penalties provided in AS 23.30.070 . . . .

Based on the evidence offered in this hearing as well as in previous proceedings involving J. B. Services, the Board finds that Mr. Lawson, remains a co-owner, based on his being a signator on the joint taxes of the business. Mr Lawson is very knowledgeable about the operations of the business based upon his doing 99% of the work of the business and based on the fact that he and his wife depend on the income from the business as a means of support and have operated the business since April 2002. The Board finds that Mr. Lawson is well aware of the business operations of J. B. Services on a day-to-day basis. The Board finds the administrative records and the hearing testimony and previous decisions show that the employer failed to show evidence of compliance with the workers' compensation insurance requirement from October 16, 2003 through June 3, 2004 and from January 2, 2005 through February 19, 2005. The Board further finds that the employees of J. B. Services were conducting work activities for the employer during this time period and specifically during the winter of 2003 and 2004. The Board finds that while the business was excused at times in the past because of the seasonal nature of its activities, i.e. landscaping and snowplowing, that in this case the employer was clearly employing employees in snowplowing activities during the winter of 2003 and 2004 and specifically from November 13, 2003 through May 28, 2004. The Board further finds that the employer had employees from at least November 13, 2003 through May 28, 2004. The Board finds that the J. B. Services never provided proof that it was excused from providing workers’ compensation coverage for the period from January 2, 2005 through February 17, 2005. The Board also finds that employees were employed by J. B. Services. The fact that they might have been paid through an in-kind or in a nonmonetary manner does not prevent them from being considered employees under the Alaska Workers’ Compensation Act. In

Nickels v. Napolilli,10 the Alaska Supreme Court considered the question of what constitutes an “employee” for purposes of coverage under the Alaska Workers’ Compensation Act. The Court noted that an “employee” is defined under the act as an “employee employed by the employer” as defined under AS 23.30.395. The Act also defines “employer” to include “a person employing one or more persons in connection with a business or industry coming within the scope of this chapter and carrier on in this state.”11 The Alaska Supreme Court went on to find an employment relationship existed even though the employer compensated the employee by providing a log home for the employee to live in and a place for the employee to keep animals. Because the employee’s work for the employer’s business further the business, the Court found that the activities were covered by the Alaska Workers’ Compensation Act. Based on this decision and the terms of the Act, the Board finds that the employees in question were employed by J. B. Services to further the business regardless of the specific means of payment for their work. The Board concludes the employer was in violation of AS 23.30.085(a) and (b) for October 16, 2003 through June 3, 2004. The employer was an uninsured employer for the period from October 16, 2003 through June 3, 2004. For the period from January 2, 2005 through February 19, 2005, the Board finds the employer was without workers’ compensation coverage during this period, however, it is not shown that the employer had employees during this time frame. The Board concludes the employer is subject to the penalties provided in AS 23.30.070 for any claims arising during the periods in which it was in violation of AS 23.30.085.

II. FAILURE TO INSURE AS 23.30.075 provides, in part: (a) An employer under this chapter, unless exempted, shall either insure and keep insured for is liability under this chapter in an insurance company or association . . . or shall furnish the board satisfactory proof of his financial ability to pay directly the compensation provided for . . . . (b) If an employer fails to insure and keep insured employees subject to this chapter or fails to obtain a certificate of self-insurance from the board, upon conviction the court shall impose a fine of $10,000.00, and may impose a sentence of imprisonment for not more than one year. If an employer is a corporation, all persons who, at the time of the injury or death, had authority to insure the corporation or apply for a certificate of self-insurance, and the person actively in charge of the business of the corporation shall be subject to the penalties prescribed in this subsection and shall be individually, jointly, and severally liable. . . .

10 29 P.3d 242 (2001) 11 AS 23.30.395(13)

AS 23.30.080(d) provides, in part: If an employer fails to insure or provide security as required by AS 23.30.075, the Board may issue a stop order prohibiting the use of employee labor by the employer until the employer insures or provides security as required by AS 23.30.075.The failure of an employer to file evidence of compliance as required by AS 23.30.085 creates a rebuttable presumption that the employer has failed to insure or provide security as required by AS 23.30.075. . . .

The employer has a general duty to provide workers' compensation insurance for its employees. Based on Board records showing a history of intermittent insurance coverage of employees, and based on the hearing testimony, we find the employer has had one or more employees and is subject to the Alaska Workers' Compensation Act. The Board rejects the employer’s arguments that its workers were not paid a salary or that it had other types of insurance coverage as reasons to excuse the requirement that the employees be covered under a valid workers’ compensation policy. We conclude J. B. Services has an ongoing duty under AS 23.30.075 to insure its employees for workers’ compensation benefits and it has failed to comply with this obligation.

We find, based on the employer's failure to provide evidence of continuing compliance that we must presume, as a matter of law, that the employer has failed to insure or provide security as required by AS 23.30.075 for the time period from October 16, 2003 and June 3, 2004 and from January 2, 2005 through February 19, 2005. However, the employer has provided evidence to rebut that presumption, i.e. it is currently insured as of February 17, 2005. Based on the Board’s records and the testimony of the employer, we find this employer has permitted its insurance to lapse while still using employee labor for the period from October 16, 2003 through June 3, 2004. In addition, the employer had no coverage from January 2, 2005 through February 17, 2005.

The Board concludes the employer failed to insure its employees, and was in violation of AS 23.30.075(a) from October 16, 2003 through June 3, 2004. Under AS 23.30.075(b), the Board concludes the employer and its owners, Patricia and Mark Lawson, are jointly and severally liable for benefits under the Alaska Workers’ Compensation Act for any claims arising during the period in which it was in violation of AS 23.30.085, from October 16, 2003 through June 3, 2004 and for the period from January 2, 2005 through February 17, 2005..

III. STOP ORDER

When an employer subject to the requirement of AS 23.30.075 fails to comply, the Board may issue a stop order prohibiting the use of employee labor. AS 23.30.080(d) provides: If an employer fails to insure or provide security as required by AS 23.30.075, the board may issue a stop order prohibiting the use of employee labor by the employer until the employer insures or provides the security as required by AS 23.30.075. The failure of an employer to file evidence of compliance as required by AS 23.30.085 creates a rebuttable presumption that the employer has failed to insure or provide security as required by AS 23.30.075. If an employer fails to comply with a stop order issued under this section, the board shall assess a civil penalty of $1,000.00 per day. The employer may not obtain a public contract with the state or a political subdivision of the state for three years following the violation of the stop order.

The employer has failed to insure or provide security for workers’ compensation coverage of its employees, as required by AS 23.30.075. AS 23.30.080(d) gives the Board the discretion to consider issuing a stop order, prohibiting the employer from using employee labor within the territorial jurisdiction of the State of Alaska.

The employer has permitted its employees to work without workers' compensation insurance coverage for an extended period. Although this employer has had ample opportunity to secure and maintain insurance, and to file evidence of compliance, it failed to do so for significant periods of time, violating AS 23.30.075 and AS 23.30.085.

The Board finds that while there may have been confusion about whether the employer needed coverage at certain times of the year when it had no employees and also whether the employee’s were independent contractors, these misunderstandings have been clearly resolved and the employer was well aware of its need to have coverage during the period from October 16, 2003 and June 3, 2004. Of particular concern to the Board is the fact that Mr. Lawson told Mr. Lutz and the Board that it had no employees during the winter of 2003 and 2004 when, in fact, it did have employees conducting snowplowing activities during this time frame. The employer also has allowed its coverage again to lapse for the period from January 2, 2005 through February 19, 2005. Although it is not clear that it had employees during this time frame, the Board remains concerned that this lapse coupled with the other lapses in coverage with the employer has clearly established a pattern

9 In Re J. B. SERVICES of failing to maintain the necessary coverage.12 While the Board is concerned about employer’s continuing coverage deficiencies, the Board will decline to issue a written stop order under AS 23.30.080(d), prohibiting the employer from using employee labor within the territorial jurisdiction of the State of Alaska. This is because the Board reads the first sentence of AS 23.30.080(d) to allow a stop order to be issued only when the employer fails to insure. Here, the employer presently has coverage and we are not able to find that the employer is failing to ensure which would allow us to issue the stop order.

The Board finds that the employer has elected direct payment of compensation for any claims arising during the period in which it was in violation of AS 23.30.075. AS 23.30.060. The Board further finds the employer is subject to the penalties provided in AS 23.30.080 for any claims arising during the period in which it was in violation of AS 23.30.075.

Pursuant to the Board’s general investigative authority at AS 23.30.135, the Board will direct the Compliance Investigator to monitor this employer’s compliance with our order and to investigate this employer regularly, for two years, for compliance with AS 23.30.075 and AS 23.30.085.

The Board also recommends this matter be referred for criminal prosecution under AS 23.30.075. The Board will retain jurisdiction over future developments in this matter for two years under AS 23.30.175(a) and AS 23.30.085. ORDER 1. Any workers working for J.B. Services were employees and subject to the requirements of AS 23.30.075(a). 2. The employer failed to provide the workers’ compensation insurance coverage as required by AS 23.30.075(a). 3. The employer is directly liable for any compensable claims arising during a period when it was in violation of AS 23.30.075. 4. The employer is subject to the penalties provided in AS 23.30.080 for any claims arising during the period in which it was in violation of AS 23.30.075.

12 The lapses in coverage also extend from the date the business started, April 2002 through June 2003.

5. Notwithstanding the employer’s pattern of failure to maintain workers’ compensation insurance, a Stop Order under AS 23.30.080(d) is not issued. This is because the employer has not failed to insure as required under AS 23.30.080. 6. Pursuant to AS 23.30.135, the Board directs the Compliance Investigator to investigate the employer regularly, for a period of two years, to insure the employer’s compliance with AS 23.30.075 and AS 23.30.085. 7. The Board recommends this matter for criminal prosecution pursuant to AS 23.30.075(b). 8. The Board retains jurisdiction over this matter under AS 23.30.075(a) and AS 23.30.085.

Dated at Anchorage, Alaska on April 20, 2005.

ALASKA WORKERS' COMPENSATION BOARD

______Rosemary Foster, Designated Chair

______Patricia Vollendorf, Member

APPEAL PROCEDURES This order is a final decision. It becomes effective when filed in the office of the Board unless proceedings to appeal it are instituted. Proceedings to appeal must be instituted in Superior Court within 30 days of the filing of this decision and be brought by a party in interest against the Board and all other parties to the proceedings before the Board, as provided in the Rules of Appellate Procedure of the State of Alaska.

RECONSIDERATION A party may ask the Board to reconsider this decision by filing a petition for reconsideration under AS 44.62.540 and in accordance with 8 AAC 45.050. The petition requesting reconsideration must be filed with the Board within 15 days after delivery or mailing of this decision.

MODIFICATION Within one year after the rejection of a claim or within one year after the last payment of benefits under AS 23.30.180, 23.30.185, 23.30.190, 23.30.200 or 23.30.215 a party may ask the Board to modify this decision under AS 23.30.130 by filing a petition in accordance with 8 AAC 45.150 and 8 AAC 45.050.

CERTIFICATION I hereby certify that the foregoing is a full, true and correct copy of the Final Decision and Order IN THE MATTER OF THE ACCUSATION OF THE EMPLOYER’S FAILURE TO INSURE

WORKERS’ COMPENSATION LIABILITY AGAINST J. B. SERVICES, Uninsured Employer; Respondent; Case No. 700000577; dated and filed in the office of the Alaska Workers' Compensation Board in Anchorage, Alaska, on April 20, 2005. ______Shirley A. DeBose, Clerk